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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: PAST who wrote (30539)	5/21/2005 10:02:52 AM
From: Haim R. Branisteanu	Read Replies (1) \| Respond to of 116555

The recent comments form the FED (AG included) related to the "localized" RE bubbles, or the size of the GSE mortgage portfolios etc. indicates to me that the FED / Treasury is scared frozen of any deteoration in RE prices which will precipitate shrinking consumers demand and roll over the whole economy into recession. The easy solution and way out of this substantial bubble and continuation of attracting funds in US assets from overseas to the US RE market is a re-evaluation of the USD. This in turn will keep inflation low at the inflection point we are now and low inflation will justify the FED not to hike rates above their 0.25%. On the other hand if the trick will not work (a quite unlikely scenario IMHO) then the inflation is back on the front burner the FED must hike interest rates further if not more aggressively stock will tank as will the overheated RE bubble and capital will flow out of the US. Therefore at this juncture the national interest of the US is to have a stronger USD until the RE bubble cools off without a need of rising interest rates substantially and be faced with the problems UK is facing now. It is all typical AG delay the strong medicine and keep the economy alive "barely" until end of his term. Trade deficits? Who cares China and Japan are coming to the rescue and I speculate a deal with the Saudis for lower oil prices in exchange of paying with US treasuries.... and US lives in Iraq ... even if not explicit intended the result is the same ...(do not get harsh on Syria, and turn a blind eye that many “foreign” Islamist fighters killing our troops and other Iraqis are from Saudi Arabia)... oh and almost forgot ... let the Saudis enter free in the US. Therefore I think the low treasury spreads we are experiencing now – some one very big is buying with both hands and props up treasuries and the USD